The Student Loan Crisis Continues: The Affordability and Accessibility Debate

October 8th, 2009 • Related • Filed Under • by Debbie Dragon

The escalating costs of education leave many wondering how they will be able to access and afford to education costs in the future. The price of a college degree continues to increase as higher education costs subsidized by loans skyrocket. Borrowing for college is the way that most college students fund their education. It is estimated that 50% of all eligible parents don’t apply for financial aid because they don’t feel that they will qualify. Others sacrifice quality of life or retirement savings to send their children to college. According to reports from the College Boards in 2007, 60 percent of undergraduate degrees were funded by borrowed money and the average debt of graduating undergraduates was 23,000.

The outlook can be grim for graduating seniors who have thousands of dollars of debt to pay off and few job prospects. Graduating students today face an unpredictable economy a lack of financial stability and job opportunity and increasing national job loss as they enter their future with mounting student loan debt.

The Department of Education recently published a report which indicated that in 2007 the national student loan default rate hit 6.7%. This percentage was an increase of 30% from the previous year. A student loan is the first step in building a credit score. A default on a student loan following graduation could destroy credit ratings making additional financial hardships in the future. There has been a significant increase in the number of students defaulting on their student loans in the first year of payback. It is estimated that because of the economic downturn the numbers are expected to continue to increase. Borrowing rates for loans have increased, job availability for new students has decreased and debt accumulation continues to spike upward. The lending crisis is estimated to cause thousands of college age students to either not attend or not complete their college studies for financial reasons.

Federal college aid programs have not seen changes since their creation in the 1960’s. In September 2009 the House of Representatives voted in favor of putting the government in charge of college aid programs. The next step of the bill will be to get approved by the Senate. The bill consists of increasing grants for needy students, financing community college reforms and ending subsidies for private lenders. Currently the interest rates for need based federal loans are at 3.4% where private loans are at about 6.8%. The bill proposes a limit to prevent interest rates on student loans from continuing to rise.

The proposal of this legislation has sparked controversy. Pushing private lenders out of the college loan industry will result in job losses in the industry. There is concern that a government run program would be another government takeover making the reform much like Social Security and Medicare with an estimated cost of almost 120 billion dollars which exceeds the amount available by lawmakers. It is also remarked that college students may not notice much difference in their loans because the bill doesn’t do much to make the loans easier to pay off or more affordable for the borrower, rather it makes them more accessible and differently managed.

The issue of affordability and accessibility continues to be the bottom line of the debate surrounding student loans and education. This debate has not provided clear cut answers to minimize the student lending crisis that continues to face the country.